This paper evaluates investments in Working Capital Management (WCM) during and after the financial crisis of 2007 – 2008 to examine the effect of financial crisis on WCM and the performance of firms in Nigeria. It argues that, during the financial crisis, investment in WCM became vulnerable due to liquidity issues compared to the period after the financial crisis. As such, this study uses a sample of 75 non-financial firms listed on the Nigerian Stock Exchange between 2007 and 2015 for examination. The differences between the crisis period (2007 to 2009) and the post-crisis period (2013 to 2015) were understudied through two tests. First, OLS regression analysis was conducted to determine the explanatory and predictive powers of WCM for the two periods via their R2. Second, a test of difference using the Cramer z – statistics for the two periods was conducted. The findings revealed that the explanatory and predictive power of WCM was greater after the crisis period than during the crisis suggesting that a difference exited between the periods. Further analysis as revealed by the z-score results showed that the differences between the crisis period and the after-crisis period were statistically significance suggesting that a meaningful difference existed between investment in WCM during and after the financial crisis of 2007-2008. These findings enabled the researchers to draw the conclusion that investment in working capital management was significantly affected during financial crisis which consequently leads to low performance. Hence, the findings of this study add to the corpus of literature on WCM and to the practical debate over the effect of financial crisis on WCM efficiency and effectiveness. It also serves as resource guide for managers who make working capital decisions on a daily basis on the need to optimize investment in working capital at all times.
Keywords: Working capital management, financial crisis, Cramer z, firm performance, Nigeria.
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